Key tax issues to watch post-election

BillBischoff

These eight tax matters could see big changes — depending on who wins the White House.

Lane V. Erickson / Shutterstock.com

Whatever the outcome of the presidential election on Nov. 6, the next Congress and president will face a pile of unfinished tax business. Some of this stuff has been lying around since 2010, and dealing with it can’t be postponed much longer — just ask the beleaguered Internal Revenue Service personnel who can’t get any closure on what the 2012 tax forms will look like. Here’s Part 1 of the story on the most important unresolved personal tax issues — complete with fearless predictions.

Payroll Tax Holiday

For 2012, the so-called payroll tax holiday cuts the Social Security tax rate on salaries and self-employment income by 2%. The maximum tax-saving benefit for one person is $2,202 (2% x this year’s $110,100 Social Security tax ceiling on salary and self-employment income). A working couple could potentially save twice as much (up to $4,404). But the holiday is scheduled to end when the big ball comes down at Times Square. Next year’s Social Security tax ceiling will be $113,700, so the maximum tax savings from extending the holiday through 2013 would be slightly bigger.

Prediction: Don’t be surprised if the holiday gets extended, regardless of who wins the election. Would that be harmful to Social Security’s long-term solvency? Of course. But leaving more cash in the hands of recession-battered consumers for one more year might take precedence.

Bush Tax Cuts on Ordinary Income

Where travel taxes are highest

(4:21)

Cities and states want tourism and visitors, and tax them heavily. Some of the revenue pays for things travelers use, and much of it pays for other things--such as big sports arenas, indigent care, law enforcement and education. Scott McCartney has details on Lunch Break. Photo: Getty Images.

Without Congressional action and the president’s approval, the current 10%, 15%, 25%, 28%, 33%, and 35% rate brackets will be replaced in 2013 by the pre-Bush brackets of 15%, 28%, 31%, 36% and 39.6%. That would mean across-the-board rate hikes for American taxpayers.

Prediction: The existing 10%, 15%, 25% and 28% brackets will be retained at least through next year regardless of the election outcome. What happens to the top two brackets depends on the election.

Bush Tax Cuts on Long-Term Capital Gains and Dividends

The current 0% and 15% rates on most long-term gains will rise to 10% and 20% in 2011. The current 0% and 15% rates on dividends will be replaced by ordinary income rates, which are scheduled to be as high as 39.6%.

Prediction: The current preferential tax rates on capital gains and dividends will be extended through next year for everybody except those “rich folks” in the top two brackets. If Barack Obama wins, they might have to pay higher rates. Not so if former Massachusetts Gov. Mitt Romney wins and the Republicans retain the House.

Harsher Marriage Penalty

The Bush tax cuts include several provisions to ease the so-called marriage penalty. The penalty can cause a married couple to pay more in taxes than when they were single, which has never made any sense. Right now, the bottom two tax brackets for married joint-filing couples are exactly twice as wide as for singles. This helps keep the marriage penalty from biting lower and middle-income couples. Starting next year, however, the joint-filer tax brackets are scheduled to contract, causing higher tax bills for many folks. Currently, the standard deduction for married joint-filing couples is double the amount for singles. But beginning next year, the joint-filer standard deduction will fall back to about 167% of the amount for singles.

Prediction: Because lots of middle-income income couples would face higher 2013 tax bills due to a harsher marriage penalty, the current more-taxpayer-friendly deal will be extended, regardless of who wins the election.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.